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3 Stocks to Benefit from the Bakken Boom

March 10, 2014 | About:
Value Investor

Value Investor

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The Bakken Shale is one of the largest oil developments in the U.S. The play has been able to increase the oil production by about four times in North Dakota. According to the U.S. Geological Survey, Bakken has the potential of producing 4.3 billion barrel of Oil whereas Continental resources estimate the production as high as 40 billion barrels.

Latest monthly update by EIA also estimates 1 million barrels of crude oil per day for the next month in the North Dakota region. This can potentially be achieved by long term drilling efficiency gains.It would be interesting to see which players will make the most out of this rich resource.

In my opinion, small companies in the Williston basin of Bakken can grow and earn huge returns for investors. Kodiak Oil and Gas Corp (KOG) is one such company. Kodiak currently has 173,000 net acre positions in Williston region with high drilling potential. Steady rig count for 2013 coupled with increase in oil production to 29,200boepd in 2013 from 14,400boepd in 2012, indicates an improved and efficient technology.

In addition to this, Board of Directors has approved $940 million capital expenditure 2014 for the development of Williston Basin. Of this, $890 million would be allocated to the drilling and completion of 100 net wells whereas $50 million will be allocated for infrastructure build up and small acquisitions. It is estimated that the capital spending would increase year over year revenue by around 45%. Therefore, Kodiak has robust growth prospects in the immediate future and this can potentially translate into higher stock prices.

Another player of Williston Basin which is boosting its growth is Northern Oil and Gas Inc. (NOG). Northern Oil works on a non-operated business model in Northern Dakota Bakken and Three Forks formations. The company has leasehold interest in each drilling unit which is drilled by its operating partners in units that include its acreage. Also since Northern has minority working interest in a well, the company does not bear all the operating and overhead costs of its operating partners, making it a low cost producer.

The non-operating model has boosted the production by 28% prior to the last year to approximately 13,900 boepd for the fourth quarter of 2013. Moreover, Northern Oil and Gas operates with majors like ConcoPhillips, Marathon Oil, EOG Resources, thus diversifying the company’s risk.

Oasis Petroleum Inc. (OAS) with 515,314 net acres in the Williston Basin also looks attractive. This is primarily because the company is still at its early growth stage with total net proved reserves growing from 80mmboe as of end December 2011 to 228 mmboe in 2013. The company is well positioned in the Williston Basin with 94% operated net locations and 68% of average working interest in the operated regions. Through organic growth and continued acquisitions, Oasis estimates to increase its average daily production to 46-50 MBoepd.

Conclusion

In my view these stocks are a good pick for long-term investment. The stocks are young with the right fortitude and skills to benefit from the market. Moreover, their ambitious plans in the Bakken could yield rising stock prices.

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Value Investor
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